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Strike by 33,000 workers halts production of key jets

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Boeing ( BA ) takes $5 billion in charges

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Company exploring options to raise billions of dollars

(Updates with union statement in paragraphs 15-18)

By Allison Lampert and David Shepardson

Oct 11 (Reuters) - Boeing ( BA ) will cut 17,000 jobs -- 10% of

its global workforce -- delay first deliveries of its 777X jet

by a year and record $5 billion in losses in the third quarter,

as the U.S. planemaker continues to spiral during a month-long

strike.

CEO Kelly Ortberg said in a message to employees that the

significant downsizing is necessary "to align with our financial

reality" after an ongoing strike by 33,000 U.S. West Coast

workers halted production of its 737 MAX, 767 and 777 jets.

"We reset our workforce levels to align with our financial

reality and to a more focused set of priorities. Over the coming

months, we are planning to reduce the size of our total

workforce by roughly 10%. These reductions will include

executives, managers and employees," Ortberg's message said.

Boeing ( BA ) shares fell 1.1% in after-market trading.

The sweeping changes are a big move by Ortberg, who arrived

in August at the helm of the beleaguered planemaker promising to

reset relations with the union and its employees.

Boeing ( BA ) recorded pre-tax earnings charges totaling $5 billion

for its defense business and two commercial plane programs. On

Sept. 20, Boeing ( BA ) ousted the head of its troubled space and

defense unit Ted Colbert.

Boeing ( BA ), which reports third-quarter earnings on Oct. 23,

said in a separate release it now expects revenue of $17.8

billion, a loss per share of $9.97, and a better-than-expected

negative operating cash flow of $1.3 billion.

Analysts on average were expecting Boeing ( BA ) to generate

quarterly cash burn of negative $3.8 billion, according to LSEG

data.

Thomas Hayes, equity manager at Great Hill Capital, said the

layoffs could put pressure on employees to end the strike.

"Striking workers who temporarily do not have a paycheck do

not want to become unemployed workers who permanently do not

have a paycheck," Hayes said in an email. "I would estimate the

strike will be resolved within a week as these workers do not

want to find themselves in the next batch of 17,000 cuts."

Reaching a deal to end the work stoppage is critical for

Boeing ( BA ), which filed an unfair-labor-practice charge with the

National Labor Relations Board on Wednesday accusing the

machinists union of failing to bargain in good faith. Ratings

agency S&P estimated the strike is costing Boeing ( BA ) $1 billion a

month and the company risks losing its prized investment-grade

credit rating.

Ortberg also said Boeing ( BA ) has notified customers that it now

expects first delivery of its 777X in 2026 due to challenges in

development, the flight-test pause and the work stoppage. Boeing ( BA )

had already faced issues with certification of the 777X that had

significantly delayed the plane's launch.

"While our business is facing near-term challenges, we are

making important strategic decisions for our future and have a

clear view on the work we must do to restore our company,"

Ortberg added.

Boeing ( BA ) will end its 767 freighter program in 2027 when it

completes and delivers the remaining 29 planes ordered but said

production for the KC-46A Tanker will continue.

The International Association of Machinists and Aerospace

Workers (IAM), the union representing striking workers, said in

a statement Boeing's ( BA ) announcement regarding the 767 commercial

freighter was troubling and that it would assess its

implications.

IAM also described Boeing's ( BA ) claims against the union with

the National Labor Relations Board as groundless.

It said both those claims and the discontinuation of the 767

cargo plane seemed intended to distract from the group's

"failure to return to the negotiating table with their frontline

workers".

Jon Holden, President of IAM District 751, said in the

statement Boeing's ( BA ) attempt to bargain in the press "won't work

and it is detrimental to the bargaining process".

He also said an unwillingness to negotiate would only

prolong the strike.

Boeing ( BA ) said in light of the job cuts it would end a furlough

program for salaried employees announced in September.

Even before the strike began on Sept. 13, the company had

been burning cash as it struggled to recover from a January

mid-air panel blowout on a new plane that exposed weak safety

protocols and spurred U.S. regulators to curb its production.

Boeing ( BA ) on Friday faced a court hearing in Texas in front of

a judge who will decide whether to accept the planemaker's offer

to plead guilty to fraud under a deal with the Justice

Department.

Boeing ( BA ) has agreed to pay up to a $487.2 million fine, spend

at least $455 million on improving safety and face three years

of court-supervised probation and independent oversight.

Also Friday, a national watchdog said the Federal Aviation

Administration was "not effective" in overseeing Boeing ( BA )

production.

Reuters reported this week Boeing ( BA ) is examining options to

raise billions of dollars through a sale of stock and

equity-like securities.

These options include selling common stock as well as

securities such as mandatory convertible bonds and preferred

equity, according to the sources. One of the sources said they

suggested to Boeing ( BA ) that it should raise around $10 billion.

The company has about $60 billion in debt and posted

operating cash flow losses of more than $7 billion for the first

half of 2024.

Analysts estimate that Boeing ( BA ) would need to raise between

$10 billion and $15 billion to maintain its ratings, which are

now one notch above junk.

Michael Ashley Schulman, partner at Running Point Capital

Advisors, said the delayed 777X delivery and labor downsizing

was not a major surprise.

"Their credit rating and share price has been at risk for

the better part of a decade because of mismanagement and the

stubbornness displayed in the strike may be the straw that

breaks the camel's back," he said.